It is fascinating to see HBOS to be acquired by Lloyds, which is only half its size! In my humble opinion, I think the government might have played a key role in this deal to avoid another Northern Rock-like nationalization. However, I'm not sure whether this is a smart move or not.
Lloyds has total assets of £367.8 billion and net tangible equity of £8.54 billion. Leverage of 43 to 1.
HBOS has total assets of £681.4 billion and net tangible equity of £18.32 billion. Leverage of 37 to 1.
These two institutions are as leverage as one can be. How much can a much leveraged, yet smaller bank: Lloyds "rescue" HBOS?
BTW, when Lehman filed for Chapter 11, it has a leverage of 32 to 1. And, Bear Stearns has a leverage of 33 to 1 when bailout by JPMorgan Chase. Even Morgan Stanley with 25 to 1 leverage is potentially merging or selling to Wachovia or other willing buyer.
The Lloyds-HBOS deal doesn't look like a good deal to me. It might solve a temporary liquidity crisis for HBOS, but if residential mortgage defaults start climbing, which I believe it will, then, Mr. Gordon Brown, might need to rethink of bailing out Lloyds-HBOS on a later date....
If HBOS needed a bailout, it would need a larger, better capitalized bank, i.e HSBC. Of course, the government is worried about monopoly, etc, etc. Unless government wants to nationalize HBOS, it really should let bigger bank like HBSC to step in. Bear Stearns is successfully taken over by JPMorgan Chase as JPMorgan is significantly bigger and has a "fortress balance sheet".
Any thought?
Disclosure: No position in any of the above mentioned banks
Lloyds has total assets of £367.8 billion and net tangible equity of £8.54 billion. Leverage of 43 to 1.
HBOS has total assets of £681.4 billion and net tangible equity of £18.32 billion. Leverage of 37 to 1.
These two institutions are as leverage as one can be. How much can a much leveraged, yet smaller bank: Lloyds "rescue" HBOS?
BTW, when Lehman filed for Chapter 11, it has a leverage of 32 to 1. And, Bear Stearns has a leverage of 33 to 1 when bailout by JPMorgan Chase. Even Morgan Stanley with 25 to 1 leverage is potentially merging or selling to Wachovia or other willing buyer.
The Lloyds-HBOS deal doesn't look like a good deal to me. It might solve a temporary liquidity crisis for HBOS, but if residential mortgage defaults start climbing, which I believe it will, then, Mr. Gordon Brown, might need to rethink of bailing out Lloyds-HBOS on a later date....
If HBOS needed a bailout, it would need a larger, better capitalized bank, i.e HSBC. Of course, the government is worried about monopoly, etc, etc. Unless government wants to nationalize HBOS, it really should let bigger bank like HBSC to step in. Bear Stearns is successfully taken over by JPMorgan Chase as JPMorgan is significantly bigger and has a "fortress balance sheet".
Any thought?
Disclosure: No position in any of the above mentioned banks
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